David Haughan, Stagiarie, Summer 2014, contributed to this post. Mr. Haughan was a legal trainee at the Brussels office of Covington and Burling LLP during the Summer of 2014. David studies at King’s College, London.
In a landmark decision (CJEU, C-573/12, Ålands Vindkraft AB v. Energimyndigheten) the Court of Justice of the European Union ruled that Member States do not need to open up renewable energy support schemes to producers in other EU countries. The Court made a clear choice in favor of investor confidence, allowing far-reaching limitations to the EU’s fundamental principle of free movement of goods.
Under Swedish law, electricity distributors are required to surrender a set amount of green certificates per year, which they need to purchase from electricity producers. The Swedish government only awards certificates to Swedish producers of renewable electricity, thereby effectively putting foreign producers at a competitive disadvantage. Ålands Vindkraft, a Finnish producer of wind energy, located in Finland but mostly connected to the Swedish grid, challenged the Swedish support scheme on the grounds that it violates the principle of free movement of goods.
Importantly, the Swedish system was adopted in an effort to achieve the national renewable energy targets, provided by Directive 2009/28 on the promotion of the use of renewable energy (“Renewable Energy Directive”). This Directive allows Member States to adopt support schemes, and grants Member States “the right to decide (…) to which extent they support energy from renewable sources which is produced in a different Member State” (Article 3(3)).
Analysis of the Judgment
Under EU law, measures that restrict the free movement of goods may be justified if they are intended to protect the environment and are proportionate and not discriminatory. The Court decided that while the Swedish system restricts the free movement of goods, such restriction is justified because it aims to protect the environment by promoting renewable energy. In doing so, Court rejected the Opinion of Advocate General Bot, who argued that both the Swedish system and the Renewable Energy Directive are contrary to EU law.
The Court referred to its Preussen Elektra case, where a reduction of greenhouse-gas emissions was found to protect the environment, to hold that the Swedish scheme could be justified as a measure aimed at protecting the environment. The Court then assessed the Swedish certification scheme in light of the proportionality principle, which only allows a restriction of the free movement goods if it is necessary for achieving the environmental objective, and if such objective cannot be achieved by less intrusive measures.
The judgment lists three main reasons why the territorial limitation of the Swedish support scheme is not disproportionate. First, the Court took note of the practical considerations that justify favoring energy at the production stage, rather than at the consumption stage. According to the Court, once the green electricity has been allowed into the transmission or distribution system, its origin is difficult to determine, thus rendering identification at the consumption stage difficult to put in practice. Second, the Court pointed out that the Renewable Energy Directive sets national targets, and that the energy mix of each EU Member State varies. The Court went on to note that, in accordance with the Directive, “Member States must be able to control the effect and costs of their national support schemes according to their different potential.” Third, the Court overruled Ålands Vindkraft’s argument that the Swedish territorial limitation was no longer necessary, as Sweden had already fulfilled its requirements relating to those targets. According to the Court, even though Sweden already reached its target, the national scheme intends to foster investments in new installations, giving producers certain guarantees about the future marketing of their green electricity, thus assuring investors’ confidence.
While logical from a business perspective, this generous proportionality assessment fails to address precisely why territorial restrictions in national support schemes are necessary to achieve the objective of environmental protection. In particular, the Court does not explain to what extent renewable energy is promoted more efficiently through such schemes than through mechanisms that are open to producers located throughout the EU. Rather, the judgment focuses on the workability of the current system foreseen by the Renewable Energy Directive, which is based on national targets. In that particular context, the Court considers that Member States must be able to remain in control of their national support schemes, and that territorial restrictions contribute to investor confidence, which can in turn boost the renewable energy produced by that Member State.
- Investor Confidence – The Court’s decision has been widely welcomed by the renewable energy industry. Opening up the national support schemes to foreign producers could have created uncertainty on the renewable energy market, thus potentially harming investor confidence. In contrast, the judgment protects the predictability of investments in renewable energy and reassures green energy companies and investors alike. Indeed, the Court held that the effectiveness of green certificate schemes “requires by definition a measure of continuity sufficient, in particular, to ensure the fulfilment of the legitimate expectations of investors who have committed themselves to such projects, and the continued operation of those installations.”
- Decision to the Relief of Member States – Several EU governments will undoubtedly have breathed a sigh of relief after reading the Court’s decision as many of them apply support schemes that are similar to the Swedish system. Should the Court have followed Advocate General Bot, then the very existence of national support schemes would have been questioned, potentially rendering the well-established support systems in many Member States illegal. German economy and energy minister Sigmar Gabriel welcomed the decision, saying that it would help Germany’s case as it seeks approval for its reformed system of renewable subsidies.
- EU Internal Electricity Market – Not everyone will be pleased with the Court’s judgment, as it is clearly at odds with the European Commission’s ambition to establish an “internal electricity market.” In its Communication on the Internal Electricity Market, the European Commission explicitly advocates removing “possible distortions to the single market arising from different national approaches” (original emphasis). Significantly, according to the Communication, “the Commission specifically as regards renewables envisages exploring options for […] ‘Europeanisation’ of support schemes for the future EU legal framework on renewables.” In light of the Court’s decision, it seems unlikely that true “Europeanisation” will be achieved any time soon.
- Spill-Over Effects? – This Court’s decision may have an impact well beyond the sphere of national support schemes. For instance, the decision provides Member States with strong arguments to publish nationally oriented public tenders in the field of renewable energy. Indeed, the Court considered that the purpose of the Swedish scheme is “to support the operation of installations producing green electricity once they become active,” and that it is “designed to facilitate the sale of green energy that they produce at a price higher than the market price for conventional energy.” This reasoning could also apply to public tenders for projects that contribute to the increase of renewable energy shares in a particular Member State.